CAHI Issues: Health Insurance’s “High Risk” Pools

Health insurance risk pools are special programs created by state legislatures to provide a safety net for the “medically uninsurable” 1% to 2% of the population, who have been denied health insurance coverage because of a pre-existing health condition, or who can only access private coverage that is restricted or has extremely high rates.

Established over 25 years ago, high-risk pools operate in 33 states and covered more than 181,000 people as of June 2004, according to Communicating for Agriculture & the Self-Employed. In August 2002 the federal government approved funding of up to $1 million each for states that did not have a qualified high-risk pool as an incentive to establish them.

The Council for Affordable Health Insurance (CAHI) believes that state high-risk pools are a much better alternative to providing coverage for the medically uninsurable than imposing guaranteed issue laws on insurers which eventually increase the cost of insurance for everyone. (Guaranteed issue is a requirement that insurers in the individual market accept applicants regardless of their health status).

CAHI Solutions

Expanding and securing federal funding for state high risk pools is a critical component in CAHI’s fight against state guarantee issue and rate restriction provisions. In 2004, CAHI was instrumental in drafting legislative language in the House of Representatives and the U.S. Senate that would extend and expand federal operational grant money to state high risk pools. CAHI has led the way in developing grass roots support for the legislation.

H.R. 4519, the High-Risk Pool Funding Extension Act, which extends funding for the operation of state high risk health insurance pools, was signed into law on February 1, 2006 (P.L. 109-172). In H.R. 4519 seed grants were extended through FY06. Funding for the FY06 seed and operational grant funding was included in the Deficit Reduction Act of 2005 (DRA). Operational grant funding for FY2007 – FY2010 was authorized under P.L. 109-172, but not appropriated. The next challenge is securing FY07 funding through the Congressional appropriations process.

CAHI Identifies 2,271 State Health Insurance Mandates

Today the Council for Affordable Health Insurance (CAHI) released “Health Insurance Mandates in the States, 2012.” According to the study, the number of state mandated benefits — which has increased steadily for 20 years – is now up to 2,271 mandates nationwide.

“One of the biggest cost drivers in our health care system is the steady proliferation of federal and state-based coverage mandates. When CAHI started tracking mandates in 1992, there were about 850 mandates across all 50 states,” explained CAHI Research and Policy Director, Victoria Craig Bunce. “Over the last twenty years the number of state mandated benefits has grown to 2,271. That’s an increase of 167 percent! Based on our annual analysis, mandated benefits currently increase the cost of basic health coverage from slightly less than 10 percent to more than 50 percent, depending on the state, specific legislative language, and type of health insurance policy.”

Most Mandated BenefitsLeast Mandated BenefitsMost Popular MandatesLeast Popular Mandates
Rhode Island69Idaho13Mammography Screening50Breast Implant Removal1
Maryland67Alabama19Maternity Minimum Stay50Cardiovascular Disease Screening1
Virginia66Michigan24Breast Reconstruction49Circumcision1
Minnesota65Iowa26Mental Health Parity48Gastric Electrical Stimulation1
Connecticut65Utah26Alcohol & Substance Abuse46Organ Transplant Donor Coverage1

“The sheer number of state mandates will make it difficult for states to deliver on one of the key promises repeatedly made by supporters of Obamacare: it would provide all Americans with affordable health coverage. The essential health benefit plan design was supposed to give states the flexibility to craft benefit packages which would be suitable and affordable for their unique populations. But HHS shackled the states to the full load of mandated benefits on their books, and the prices of next year’s offerings in the health insurance exchanges are going to bear witness to the free-wheeling mandate craze of the last twenty years. Recent studies have predicted double digit increases in health insurance premiums next year — the mandates are coming home to roost,” said Roy Ramthun, CAHI’s Director of Federal Affairs.

A health insurance mandate requires insurers to cover specific health care providers, benefits or patient populations. Mandates make health insurance more expensive because they require insurers to pay for care consumers previously funded out of their own pockets.

When policymakers complain about the high cost of health insurance, CAHI wants legislators to know they are partially to blame. The mandate explosion and the corresponding effect on the cost and availability of health insurance is a direct result of legislative action. We hope this publication will encourage them to think twice when asked to sponsor or vote on legislation that contains a mandate providing services to the few at the expense of the majority.

The study’s author, CAHI Research and Policy Director Victoria C. Bunce, assisted by CAHI staff, tracks hundreds of mandate bills annually and identifies those that are enacted into law. A team of actuaries, supervised by CAHI’s Actuarial Working Group on Mandated Benefits provides an estimate of each mandate’s cost.

Since 1992, CAHI has been the principled, free-market voice protecting and promoting access, affordability and choice in American health care. CAHI’s membership includes health insurers, small businesses, physicians, actuaries, insurance producers and brokers and consumers. It’s your health; it’s your choice.

Mini Medical Plans on the Move

Mini medical plans and other limited benefit health plans may be secret hits. Published statistics on mini med plans and related benefits products are hard to find. But John Edelheit says he thinks the market for employer-sponsored mini med plans and other employer-sponsored limited benefit health plans is booming.

Edelheit is vice president of sales and marketing at United Group Programs Inc., Boca Raton, Fla., a broker that sells plenty of conventional insured and self-funded major medical plans. The company also distributes mini med plans underwritten by Pan-American Life Insurance Company, New Orleans.

More than 40% of United Group’s new group health customers are buying mini med plans, and about 1% of United Group’s traditional group health customers are shifting at least some of their employees to mini med plans, Edelheit estimates.

“The mini medical market,” says Edelheit, “has caught on and spread like wildfire.”

Edelheit predicts that use of mini med plans will soar at his brokerage and others over the next 2 years as conventional major medical prices continue to skyrocket.

Jeff Morgan, a field vice president in the Jacksonville, Fla., offices of Allstate Workplace Division, a unit of The Allstate Corp., is seeing fast growth in critical illness insurance sales and moderate growth in mini med sales.

“But mini med sales could accelerate at Allstate because agents are very interested in mini medical,” Morgan says.

A mini medical plan is an inexpensive health insurance plan that provides far lower benefits than the typical comprehensive major medical plan.

Many good comprehensive plans will pay hundreds of thousands of dollars in benefits over the course of a year. Annual benefits maximums at the typical mini medical plan might range from $1,000 to $25,000.

Bonnie Brazzell, a vice president at Eastbridge Consultants Inc., Avon, Conn., puts mini med plans in the limited benefit health product category. The category includes the venerable hospital indemnity policy, which pays a fixed indemnity benefit for each day of hospitalization, and the supplemental health insurance plan, which helps fill in gaps in conventional major medical plans.

The mini med plan is the cousin of critical illness policies, which pay benefits to insureds affected by certain specified medical conditions.

Most states exempt limited benefit health insurance products from conventional major medical plan mandates, and some insurers, such as Allstate, avoid state benefits mandates entirely by selling mini medical only to employers with more than 50 workers.

For many insurers, the lighter regulatory burden and conservative plan designs make the mini medical plan market far more attractive than the major medical market.

The underlying cost of care continues to increase at least 10% per year for major medical insurers, but, at the Allstate mini medical plan, “our claims are going up at a pretty reasonable rate,” Morgan says.

The Allstate mini medical program offers 3 plans with annual coverage maximums ranging from $3,000 to $10,000. The low-end plan pays $200 in indemnity benefits per day for a few days of hospitalization, and the high-end plan pays $400 per day.

After the insured makes a 20% co-payment, the Allstate plans will pay 100% of the cost of a physician’s office charge during an office visit and 70% of other office visit costs until the patient reaches the annual medical expense maximum.

Pan-American’s mini medical plans, which cost about $50 to $180 per employee per month, pay $200 in indemnity benefits each day for up to 500 days in the hospital. The only prescription drug benefit is a drug discount card.

The high-end plan provides up to $1,000 per day for hospitalization. It also offers a surgery benefit of up to $3,000 and up to $400 per month in prescription drug coverage.

Many mini medical plans also include options that workers with good health benefits take for granted, such as access to a preferred provider network, an employee assistance program and a 24-hour nurse line.

The coverage is usually not enough to cover the full, retail cost of a major operation. But, if a vendor sells a high-end mini med plan together with access to an effective preferred provider network, a mini med plan should be able to cover the cost of several physician office visits, most of the discounted cost of several in-network tests and much of the discounted cost of a few days in an in-network hospital.

Edelheit cites the example of one patient who had relatively rich mini med plan coverage. Thanks to the coverage and an unusually deep provider discount, the patient ended up paying just $900 out of pocket for a $29,000 brain operation, Edelheit says.

In some cases, employers might be able to significantly improve mini med protection by combining mini med coverage with critical illness coverage. Employers who combine Allstate mini medical plans with Allstate’s critical illness insurance can provide up to $100,000 in additional coverage for insureds who suffer from cancer, heart attacks or other specified conditions.

United Group has created similar packages of mini med coverage and critical illness insurance for at least 2 employers, Edelheit says.

Limited benefit plans are getting more attention in the worksite market than in the traditional group benefits market. Eastbridge found when it surveyed worksite carriers that 67% were selling some form of hospital indemnity or medical supplement insurance at the worksite or were likely to add such products in the near future.

But experts interviewed say they are seeing interest in mini med plans growing in the traditional group benefits market.

“The employers are looking to save money, and mini medical is one of the ways they can do that,” Morgan says.

For years, consumer advocates have criticized limited benefit health products. The critics have complained that some states let sales and administration costs eat up 50% of the premium revenue at limited benefit plan programs. The critics also worry that the policies are confusing to consumers, and they say workers would be better off if employers would stretch their benefits budgets by buying health plans with higher out-of-pocket costs.

The United States General Accounting Office published a report in 1988 which concluded that limited benefit health plans had little to offer the typical consumer.

Even some health insurance experts who are vigorous critics of health insurance mandates are unenthusiastic about mini medical plans.

“We think that most people would be much happier with a [Health Savings Account],” says Merrill Matthews, president of the Council for Affordable Health Insurance, Alexandria, Va., referring to programs that combine high-deductible health insurance with personal health savings accounts.

But Matthews is quick to add that even a program based on high-deductible insurance might be too expensive for some employers. “All of us would like to have a Cadillac loaded with options, but we can’t all afford it,” Matthews says.

United Group would rather sell ordinary health coverage or high-deductible health coverage to employers, but mini medical plans are usually cheaper than high-deductible comprehensive plans, and many low-income workers care far more about low out-of-pocket costs for everyday care than high coverage limits for catastrophic conditions, Edelheit says.

He agrees with critics who contend that many mini medical plans deliver less than they promise. He says any agent who wants to sell limited benefit health products should check references carefully to verify that a plan and any provider network offered work the way employers and employees will expect.

Even when a mini medical plan lives up to the promises made in its plan documents, “it is not a major medical plan,” Edelheit says. “It’s not something I would want to be on.”

But low-income workers who have had to depend on government programs and charity care may find that having even a small amount of private health coverage improves their access to care and increases their ability to bargain for more access, Edelheit says.

He recommends that agents who want to enter the market seek out simple plans and make sure that enrollers explain coverage limitations.

At companies that sponsor mini medical plans, “a lot of the employees can barely speak English,” Edelheit says. Although the employees might be intelligent, industrious and thrifty, “they don’t know anything about health insurance.”

Plan members will be much happier with a mini medical plan if they have a realistic idea about what the plan will pay for, Edelheit says.

Today, benefits buyers who are interested in group mini med plans include owners and managers of nursing homes, security firms, temporary employment firms and other companies that employ large numbers of temporary, part-time or low-paid workers, mini medical plan experts report.

In the future, employers might offer specially designed mini medical plans to higher-paid employees who have health savings accounts and HSA-compatible high-deductible health insurance.

The HSA law lets employers and employees deduct HSA contributions if they combine the HSAs with health insurance policies with annual deductibles ranging from $1,000 to $5,000 for single employees.

The authors of the HSA statute have tried to give HSA holders a financial incentive to hold down health care costs by discouraging the use of insurance to eliminate the deductible. But issuers of HSA-compatible health insurance policies can cover preventive care on a low-deductible or no-deductible basis, and the HSA statute states that employers can combine the HSA-compatible health insurance with ?insurance for a specified disease or illness, and insurance paying a fixed amount per day [or other period] of hospitalization.?

Today, at United Group, about half of the employers who set up mini med plans now pay some or all of the tab themselves, according to Edelheit.

One example of a company that uses the Pan-American mini medical program as an employer-paid benefit is Electrical Staffing Inc., New Haven, Ind., a national electrical contractor staffing service.

“Our intention is to provide real and usable group benefits to you at no cost,” Electrical Staffing tells prospective contractor-employees through its recruiting Web site.

Electrical Staffing says it will pay all of the cost of a Pan-American plan with a $200 daily hospital indemnity for contractors who work for Electrical Staffing for at least 1 hour in a given month. The daily hospital indemnity benefit increases to $300 for contractors who work for Electrical Staffing for at least 90 hours in a given month.